A lien is defined as a claim against a property for
repayment of a loan or other judgments.
This sounds like a very boring topic, but it's one of vital
interest to you as an investor. This is because of one very
important fact--a lien affects the ability to transfer
ownership of a property!
Believe me, it gets very exciting (and unpleasant) when a
lien pops up and causes a very profitable deal to fall
through. Failure to do due diligence on properties can cost
you a lot of money!
So, my advice is to study closely the information in this
article. It can keep you on the path of profitability and
save you considerable heartache.
Categories of Liens
As I said earlier, liens are a claim against a property. In
general, there are two categories of liens—voluntary
and involuntary.
A voluntary lien is a mortgage or deed of trust lien. In
other words, when you buy a property, you agree that the
lender has a claim on that property until the mortgage or
deed of trust is paid in full. An involuntary lien is the
result of legal action. Hopefully, you won't have to deal
with every type of lien I describe below, but, if you do,
you'll be forewarned and forearmed and can deal with the
situation in the most effective way possible.
Types of Liens
Bail bond lien
A bail bond allows a person arrested on criminal charges to
be released on bail pending his or her trial. One way to
get a bond is to pledge capital in the form of real
property (a home, etc.).
Child support payment
When a property owner fails to make court-ordered child
support payments, the state government places a lien
against the property's title.
Code enforcement lien
This type of lien occurs when a property owner is fined for
failing to correct code violations and fails to pay the
resulting fine.
The local enforcement board then places a lien on the
property's title.
Corporate franchise lien
This lien can occur within states that have a corporate
franchise tax for the right to do business within those
states. If a corporation fails to pay the tax, the state
places a lien against any corporate real property within
the state.
Federal judgment lien
This lien involves debtors who've defaulted on federally
guaranteed loans (SBA loans, student-guaranteed loans,
etc.). When default occurs, a lien is placed against the
property title.
Federal tax lien
When a person fails to pay federal income tax, the Internal
Revenue Service has the statutory power to place a lien
against the title of any real property belonging to that
person.
Needless to say, you don't want to fall into the swamp of
legal entanglement that comes from dealing with the IRS.
Homeowners' association lien
This lien occurs when a member of a homeowners' association
fails to pay his or her dues as per the deed to the
property. The lien is placed against the property title.
Judgment lien
This type of lien occurs when lawsuits award monetary
damages to the plaintiff against the property owner. In
this case, a lien is placed against both personal and real
property of the defendant until the judgment is made.
Marital support lien
A lien is placed against a property's title when a property
owner doesn't pay court-ordered marital support. This can
be done on the local, state and federal levels.
Mechanic's lien
This is a statutory lien which allows architects,
contractors, engineers, mechanics, surveyors, etc. to take
legal action against a debtor who's failed to pay for
furnished work or material for the improvement of real
property. The lien is placed against the real property
being worked on.
Mortgage and deed of trust lien
As I mentioned earlier, this is a voluntary lien created
when real property is pledged as security for the repayment
of the debt.
Municipal lien
A lien is placed against a property's title when a property
owner fails to pay for municipal services (e.g., water,
electricity, etc.).
Public defender lien
When a property owner fails to pay for a court-appointed
public defender, governments place a lien against the
property title.
Real property tax lien
When a property owner fails to pay his or her property
taxes, liens are placed against the property by local
authorities.
State inheritance tax lien
This is a tax levied against the estates of deceased
individuals.
If the tax is not paid, a lien is placed against the estate
for the amount owed.
Welfare lien
The local, state, and federal governments can place a lien
against the property's title when a property owner
fraudulently collects welfare payments.
Sources of Information About Liens
There are many local, state, and federal sources for
getting detailed information on liens. In terms of state
and local agencies, the names vary with the region, but, in
general, you can get information from the following offices:
Circuit court office
Check for tax liens on state income, state inheritance,
state franchise taxes, etc. Also, check for liens against
estates of deceased persons, guardianship of minors and
incompetents, termination of joint tenancies, etc.
County clerk's office
Check for the same items as in the circuit court office.
Country recorder's office
Look for judgment liens, property tax liens, federal tax
liens, etc.
Check for conditional sales contracts (contracts for deed,
land sales contracts, etc.).
Also, look for notices of "lis penden." This is a notice
filed or recorded for the purpose of warning all persons
that the title or right to the possession of certain real
property is in litigation. The Latin term literally means
"suit pending."
Municipal clerk's records
Analyze the records for any liens for failure to pay for
municipal services like water, sewer, and trash removal
services. Also, check for any code enforcement fines.
United States Court
Look for any federal judgments against the title holder.
These could include federal tax liens and liens resulting
from defaults on FHA, Department of Veterans Affairs (DVA),
SBA, and student loans.(see
http://www.pacer.psc.uscourts.gov )
Key Point: Always, always perform due diligence in regard
to liens! A little investment of research time can make the
difference between a nice profit and a financial and legal
nightmare!
Jack Sternberg
----------------------------------------------------
Jack Sternberg is a nationally recognized expert on real
estate investment who's been in the business for more than
30 years. Sternberg is the creator of the renowned "Buyers
First" Program. His deals have totaled over $750 million
and he's been to the closing table more than 1,500 times.
For more, visit http://www.askjacksternberg.com
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